Sharing the Love: SM Artists Become Company Shareholders

Of South Korea’s many growing entertainment companies, SM Entertainment is often portrayed as the biggest and baddest wolf in town — and it isn’t terribly hard to imagine why that might be. Following some high-profile and very visible lawsuits (those surrounding DBSK and Super Junior’s Han-geng immediately come to mind), SM has often been accused of foisting slave contracts upon their artists, of treating their artists as sub-human cogs in a machine, and of sacrificing the health and well-being of their artists in favor of profit-seeking. But now, SM has gone and committed the most heinous crime of all crimes imaginable: they have offered to sell treasury stock to their artists at reduced market price. The horror! The inhumanity! Somebody call Oprah!

Wait, what?

Okay, so obviously the hyperbole was intended. But let’s get to the facts before somebody hurts him/herself.

Yes, SM will be offering their artists the chance to buy stock in the company via third party allocation. This means that for a limited period of time (until April 3), SM artists will be able to purchase up to a certain number of shares at going rates of 10% lower than market value. In total, 21,120 shares (collectively worth 980 million won, or ~$881,000) will be issued to 48 artists; BoA, Kangta, and members of Super Junior, SNSD, and DBSK can purchase up to 680 shares each, while members of f(x) and SHINee will be permitted to purchase up to 340 shares each. In hard numbers, the stock purchased by the veteran artists would be worth ~$27,200, while stock purchased by junior artists is valued at around $13,600.

Motivations? Well, business hasn’t got much room for altruism, so we must expect that Father SM didn’t just wake up one morning and decide to bestow upon his hard-working children thousands of dollars worth of company stock. Practically speaking, there are a lot of good reasons for an entertainment company to provide incentive for its artists to invest in it — for one, it strengthens the partnership between the artists and the company in a way that contracts might not. Owning stock in the company grants to the artists part ownership of the company itself, and therefore theoretically increases their investment in making sure that the company does well. Additionally, it gives artists a little bit more say in how the company is run, perhaps even allowing them more creative control in developing and marketing new content (though I wouldn’t expect much). SM’s comments on the matter have essentially reinforced and reflected these arguments; a spokesperson for SM said, “This paid-in capital increase is a way to strengthen the partnership between the company and its artists. We hope this will help the entertainers share the vision and growth of the company and participate in its future.”

Because this is K-pop, and nothing in K-pop can happen without somebody somewhere having a cow for whatever reason, reactions to this news have ranged from polite interest to crazed conspiracy theorizing. Some have applauded SM for the move, expressing that this might allow SM artists to have a greater role in advocating on their behalf within the company’s hierarchy; others have expressed disgust and outrage over the fact that SHInee and f(x) were not offered as much as were some of the more senior artists; still more have accused SM of simply attempting to bait their own employees and essentially tether them to the company, further reinforcing their status as slaves. Some have even raised speculation that the artists will take over the company now that they are part-owners. In order to better wrap our heads around the situation, let’s try to break it down and figure out what it all means before we jump to conclusions.

Although it is true that this is a first in terms of an entertainment company offering a good deal of stock to its artists, this isn’t exactly a new practice for SM. BoA and Kangta have been SM shareholders for years — at the time of her contract renewal in 2006, BoA’s holdings amounted to roughly $1 million, which is about four times the amount that the current stock that, say, Yunho or Jessica would be eligible to purchase under this third-party arrangement. In other words, at least some SM artists have been participating in the company as shareholders for years now, and nothing has really changed. At any rate, BoA hasn’t used her apparent stock-holding power to demand that everyone in the company get femme-mullets and wear spandex…although I’d like to think that even she acknowledges that the fashion choice in “Girls on Top” was a disaster.

To further put it in perspective, the founder of SM Entertainment, Lee Soo-man, is the largest shareholder in the company and owns 4.4 million shares that are, in total, worth about 280 billion won — roughly $246 million. SM has issued a total of roughly 20 million stocks. Read that number again — 20 million. Lee Soo-man therefore owns about a fifth of them, and collectively all 48 artists who were issued stock (excluding BoA and Kangta’s previously-owned stock) own about 9% of the total stock. Collectively. If you break it down by individual (or even individual group), the amount of stock owned is obviously even more insignificant. This basically leads me to believe that SM’s artists have no more say in the running of the company than they did beforehand.

Since the consequences of the actual stock-issuing in monetary terms are insignificant at best, we should look at what the artists themselves will get out of this deal. Turns out, it isn’t much; SM does not pay dividends to shareholders, meaning that the artists won’t actually see any actual cash come out of stock ownership unless they choose to engage the stock market and sell off their shares. Essentially, then, for SM artists, stock ownership has more symbolic value than it does material value: since the total number of shares they own likely won’t entitle them to influence the company’s decision-making and won’t actually provide them with any additional capital, the whole situation ultimately results in something of a maintenance of the status quo, except now the artists have some stock that the company made it possible for them to purchase at a lower price.

So what can we make of this, then? Was it simply a gesture of “goodwill” on behalf of SM, or was it really part of some sinister plan to ensure that none of their artists make a break for it or attempt to sue the pants off of them? Unfortunately (and quite obviously), we as fans really have no way of knowing. There isn’t really enough information out there to make a value judgement on how the artists themselves feel about the stock offering; indeed, it bears repeating that the artists are not being given the shares, but the opportunity to purchase them at reduced price. We do not know if the artists have the chance to opt out of this, although my suspicion is that they do not. Perhaps they all secretly resent being made to purchase the shares, if it is indeed the case that they do not have a choice in the matter. But really, my own personal opinion is that the very public announcement of the stock-issuing was mostly done for publicity, probably to portray a more cohesive image of the SM family and to suggest to fans that the artists are being treated well and given respect by the company. Ultimately, since the stock changes very little about the artists’ current positions within the company, the news could really have no other significant implication.

Consider this, though: JYP, YG, and SM are all owned and essentially operated by individuals who were once idols and singers themselves. The artists of SM might be the next generation of CEOs or shareholders calling the shots for entertainment companies. In that sense, allowing idols to take part in ownership or running of their respective companies (whether symbolic or actually effectual) isn’t necessarily a bad thing. Whether or not this is the case with the current SM situation, I can’t say. But I’m going to go ahead and say that SM’s designs in this case are probably not any more malicious, conniving, or dastardly than are any of their ordinary operations or business practices. And in the end, it probably WILL wind up being good for the artists; though the language used by SM’s PR people was a little bit sugary, it likely will wind up increasing the strength of the partnership between SM and their artists, and might give greater incentive to the artists to continue to invest in SM — whether by means of human capital or actual capital — in the future. I wouldn’t be surprised to see other entertainment companies follow suit in the future. In regards to the overblown hype, the fact that this involves precious, precious idols, whose livelihood fans (for some reason) feel obligated to defend, is likely the reason behind the reactions in this case.

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I didnt know it was “you can buy it at 10 percent off,” I assumed it was just given to them. At least this makes more sense business wise. IMO this tests the artists about how happy they are with the company. More stock purchases = more happy. SM will react accordingly, whether that will be good or bad has yet to be seen.

SHINee and f(x) were given lower stock options because obviously they had later debuts. Damn SHAwols and Pluses(?) getting all mad for obvious logic.

Anonymous

Pluses. lol.

Muneeb Ahmad

Well like you said BoA has already held a number of shares in SM Entertainment for many years and her career isn’t any better nor worse as a result. Its just a symbolic thing that doesn’t add anything to the scene. Move along people, nothing to see here unfortunately…

Anonymous

“With roughly 0.1% of shares, the artists will not have any decision making influence. Because their stock percentage is so low, their voices wouldn’t really count for much in shareholder meetings and decisions made within the company. Also, if the stock worth ever drops or fluctuates – which it will and does occasionally – it directly affects that percentage as well. It also means that if an artist were to ever leave the company, they would be forced to sell their stock before they truly could break all connections.

In short – they are indeed shareholders and given that title now, but fiscally, it isn’t going to amount to very much. I doubt it would even amount to a small percentage of what they should be making (most of them don’t even make what they SHOULD be making annually as it is to begin with). If you want to truly take a look at exactly how screwed up SM and their money is, you should take into consideration that SM artists also occasionally write, compose, and produce their own music – but they rarely obtain the copyrights to their own work. The profit they *should* be seeing from doing these jobs is going to SM directly because they’re the ones holding the copyrights to it.

Artists see even less of a percentage in income from merchandise – if any at all – which is an even bigger selling point than the albums themselves for SM as a company because that’s where the majority of the revenue from artists comes from. The point is – by the end of it all – stocks or not – SM as a company is making a HELL of a lot more money for everything these artists do than the artists themselves will ever see in their lifetimes – and that’s only on the basis that they abide by a fair global market’s standards. They don’t.

The significance of these stocks doesn’t escape me, even Walmart employees hold stock given to them in their company – but it doesn’t mean they ever see anything from it. SM has been getting a reputation as a company who screws over their artists and low level employees (i.e. cutting jobs and salaries, while giving top executives bonuses). Giving stocks like this is what’s called a “publicity stunt.” It’s meant to look good to the general public who wouldn’t really understand how the entire process and industry works.”

Anonymous

Yes. This. Just an image booster…nothing more, nothing less. I own stock in Barnes and Noble about comparable to the amount of stock these artist got…I don’t control a thing in that company or have any say in what they do. But B&N..gives me a 401k and I have actually take money out of it now and use it like a loan from myself if needed.. Unlike this situation.

I’m curious, do you know how much SM profits? Because what may seem like robbing and overworking their artists may just be what’s necessary to earn back investments. Training idol groups and keeping them afloat in the industry (paying for music videos, album tracks, composers, stylists, vocal coaches, photographers….) costs a lot of money, and their revenue could just as likely be paying for all that as it could be going into LSM’s pocket.

I think you missed stating one fact in your article. SM is issuing NEW shares for SM artists to purchase. This means that instead of borrowing money from banks or other investors, SM is adding a certain number of shares for sale to the public to raise its money. This is not at all abnormal neither does this mean SM is in money trouble, but it is something done by companies to expand capital. It’s good that SM is selling it to their artists first and at a discount so both SM and the artists are going to benefit from this. The benefit is not one sided.

What’s going on in this case is that SM is issuing new shares and are selling the shares to their artists for 10% less its value (which is the only altruistic part of this news as existing stocks can be bought at a regular price in the stock market by the artists themselves) so the moment an artist buys shares, there is an outright 10% increase to his investment. But stocks are volatile so you cannot guarantee this 10% outright increase in investment in the long run. It can go down the next day thereby making it a loss for the artists. Of course, hopefully and likely, the value will increase because SM is a strong company.

To me, the positive side of this story is that artists are encouraged to claim a stake because more than the management, the artists whose faces, actions and hard work appear in public will have the most impact in the overall success of the company. This gives the public a commitment and a guarantee that the artists will do their job right and well.

Anonymous

It’s a business. They don’t borrow money so that means they might need some more capital for something big to come. I also don’t think we can ever say that they’re being paid poorly since we have no idea what their salaries are. They seem to be making lots of money, but even Selena Gomez has higher profits than most idols. It’s business, all high executives make a lot of money at the expense of others, it’s just that kpop links it’s idols/artists too closely to their agencies. We have no idea of what goes behind the scenes, they’re all overworked, but what idol isn’t. Shady things happen, but shadier things happen at smaller companies with less popular artists/idols. It’s hard to take advantage of someone with a certain level of fame and recognition, but you can easily abuse those with no fame or recognition. It’ll be nice if the world was full of hugs and puppies, but it’s not. Good publicity, marketing, or benefitting artists…….. we really have no control.

Anonymous

This is a very smooth way of SM basically using some of the money invested in it’s artists and buying stocks with it. I doubt the artists themselves had anything to do with buying these stocks considering that it was done all at the same time. Especially given how insignificant the amount of stocks were and the fact that SM doesn’t even have a very high profit for a business compared to loads of others even within Korea. The whole thing seems pointless and broadcasting it to the public didn’t seem to do them many favors either.

Anonymous

“others have expressed disgust and outrage over the fact that SHInee and f(x) were not offered as much as were some of the more senior artists; ”
OH COME ON.

“So what can we make of this, then? Was it simply a gesture of “goodwill” on behalf of SM, or was it really part of some sinister plan to ensure that none of their artists make a break for it or attempt to sue the pants off of them? ”
Yes, and maybe some more propaganda of how united they are and stuff.

Thanks for this article! :)

Anonymous

I mean, another thing to think about maybe is that an idol’s career, compared to say, a doctor, is not everlasting.

Maybe buying a share will allow them some sort of monetary insurance in the future?

I’m just conjecturing.

A A

UM…

YEAH

YOU HAVE NO IDEA HOW STOCKS WORK…

AND CLEARLY NO ONE IN THE COMMENTS DOES EITHER…

Anonymous

So, please enlighten us.

Anonymous

lol so rather than explaining how stocks work you just put down everyone?

how about letting us all know instead of acting all high and mighty?

Anonymous

It’s not exactly uncommon for companies to allow stock options for their employees. And SM idols are technically employed by SM Entertainment.

I can’t imagine that owning such a tiny part of the company is going to do any of the idols any good unless they own as many as BoA does. It’s more symbolic than anything, like a sign that the idols are happy with their company. It doesn’t mean they’ll get any more control over their schedules or their concepts.

The point is that nothing is really going to change. This little announcement seems more like a publicity stunt, intended to convince people that SM Entertainment isn’t as bad as people make it out to be despite their… inability to leave JYJ alone and decline in overall musical quality in the past 3-4 years.

Anonymous

This may be done just for publicity and whether it’s worthwhile or not for the artists depends on the financial performance of SME. But as a public listed company they have to comply with certain disclosure requirements and maybe (since i don’t know the Korean regulations) the issuance of new shares is something that they have to announce to the market.

= =
Do you guys even know how stock trading work?
Firstly, it is quite normal that companies offer its employees stocks because the employee would be encouraged to work harder as the value of the stocks increase as the company becomes more valuable. This strengthens the bond between the company and its employees.

Also, by buying the stocks at a 10% discounted price, the artists would essentially be earning the original price of the stock back simply by immediately selling the stocks into the market, so I just LOLed when people were raging about SM being so cruel to forcef their artists to spend their own money to buy those shares.

So to sum it up, this move is just so damn common I can’t believe you actually spent time to analyze it. This is obviously a publicity move, and I can’t believe you guys fell for it.

ultimately Sunny will have to take over her uncle’s empire. meanwhile some of the seniors (think Boa and Kangta) will act as regent before the princess turns into queen (hopefully without a palace coup of sorts). meanwhile with virtually all the empire settling into a steady rhythm, it just means that they will be able to keep them longer in the company